(Ratio Computations and Discussion) Sprague Company has been operating for several years, and on December 31, 2004, presented the following balance sheet.

The net income for 2004 was $25,000. Assume that total assets are the same in 2003 and 2004.
Instructions Compute each of the following ratios. For each of the four indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company.

(a) Current ratio.

(c) Debt to total assets.

(b) Acid-test ratio.

(d) Rate of return on assets.

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SPRAGUE COMPANY BALANCE SHEET DECEMBER 31, 2004 Cash Receivables $ 40,000 75,000 Inventories 95,000 Plant assets (net) 220,000 $430,000 Accounts payable Mortgage payable Common stock ($1 par) Retained earnings $ 80,000 140,000 150,000 60,000 $430,000